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Income Tax Appellate Tribunal, ‘C’ BENCH : BANGALORE
Before: SHRI. B.R. BASKARAN & SMT. BEENA PILLAI
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER Present appeal has been filed by assessee against order dated 30/03/2016 passed by the Ld.CIT(A), Mysore for assessment year 2009-10 on following grounds of appeal:
1. The order of the Hon'ble Commissioner of Income Tax (Appeals), Mysuru, insofar as it is against the Appellant, is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the appellant's case.
2. The appellant denies itself liable to be assessed over and above the returned income of Rs. 39,19,168/- on the facts and circumstances of the case.
3. The learned Commissioner of Income Tax (Appeals) erred in law in holding that for computation of deduction under section 10A of the Act, the brought forward losses have to be set off against the profits of eligible unit until STPI registration, on the facts and circumstance of the case. 4. The learned Commissioner of Income Tax (Appeals) failed to appreciate that section 10A of the Act is governed by Chapter III of the Act and the items therein do not form a part of the total income whereas, section 72 of the Act which governs the set off of losses and consequently, the question of set off of brought forward losses before computing deduction under section 10A of the Act do not arise on the facts and circumstances of the case. 5. The learned Commissioner of Income Tax erred in law in not setting aside the statement of total income as computed by the Assessing Officer as it has arithmetical infirmities and consequently, the statement of total income as computed by the appellant ought to have been accepted in entirety on the facts and circumstances of the case. 6. Without prejudice to the right to seek waiver as per the parity of reasoning of the decision of the Hon'ble Apex Court in the case of Karanvir Singh 349 ITR 692, the appellant denies itself liable to be charged to interest under section 234C of the under the facts and circumstances of the case. Further, the levy of interest under section 234C of the Act is also bad in law as the period, rate, quantum and method of calculation adopted on which interest is levied are all not discernible and are wrong on the facts of the case. 7. The appellant craves leave to add, alter, modify, delete or substitute any or all of the grounds and to file a paper book at the time of hearing the appeal. 8. In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity.”
Brief facts of the case are as under: The assessee is closely held company engaged in the business of providing information technology services including custom application development, analytics and data migration. For year under consideration, assessee filed its return of income on 24/09/2009 declaring total income of ₹ 39,19,168/-and claimed ₹ 35,85,039/- is exempt under section 10A of the Act. The Ld.AO observed that assessee applied for registration of their unit under software technology Parks of India which was granted in the month of December 2008. The Ld.AO observed that, the assessee claimed exemption pertaining to 10A, for period of 3 months, towards the end of the relevant financial year under consideration. The Ld.AO observed that in the computation of income, the assessee claimed brought forward losses amounting to ₹ 10,26,150/- and set off of laws against the taxable income after claiming exemption under section 10A of the Act.
The Ld.AO did not agree with the kind of computation and held that the laws carried forward to be set off against the profits before claiming exemption under section 10A. The Ld.AO made adjustment to the returned income and assessed the income of assessee at Rs.50,58,823/-. The Ld.AO also disallowed the telecommunication expenses of ₹ 1,89,364/- and ₹ 3,58,590/- being expenditure in foreign currency on travel from the export turnover for computing the deduction under section 10A of the Act. Aggrieved by the order of Ld.AO, assessee preferred appeal before the Ld. CIT(A).
The Ld. CIT(A) after considering the submissions of assessee observed and held as under: “6.7 The appellant submitted that since the assessing officer did not consider the telecommunication expenses to an extent of Rs.1,89,364/- and expenditure in foreign currency of Rs.3,58,590/- for the purposes of computing the Export Turnover, the assessing officer should not also have considered the said telecommunication expenses and foreign currency expenses for the purposes of Total Turnover. In this regard, reliance was placed on the decision of the Hon’ble Jurisdictional High Court of Karnataka rendered in the case of CIT & Another Vs. TATA Elxsi Ltd., reported in 349 ITR 98, wherein the Hon’ble Court in their judgment held as follows: “The components of the export turnover in the numerator and the denominator cannot be different. Therefore, though there is no definition of the term “total turnover” in section 10A, there is nothing in the section to mandate that, what is excluded from the numerator that is export turnover would nevertheless form part of the denominator.” 6.8. Therefore, after duly considering the alternative plea taken on behalf of the appellant, placing reliance on the decision of the Hon’ble Jurisdictional High Court of Karnataka in the case of CIT & Another Vs. TATA Elxsi Ltd., reported in 349 ITR 98, the second, third, fourth, fifth and sixth grounds of appeal
are decided with a direction to the Assessing Officer as follows: (a) As the exemption u/s. 10A has to be excluded from the total income of the appellant as per the decision of the jurisdictional Karnataka High Court rendered in the case of CIT Vs. M/s. Yokogawa India Ltd. reported in 341 ITR 385 and the Hon’ble Delhi High Court in the case of CIT Vs. TEI Technologies (Pvt.) Ltd. [2012] reported in 25. Taxmann.com
5. (Delhi), the unabsorbed business loss of the appellant shall not be set off against such profits and gains of the unit which became eligible for exemption u/s. 10A of the Act, only for the profits attributable to the eligible period commencing from the month of January, 2009 up to the month of March, 2009. (b) As per the decision of the Hon’ble Jurisdictional High Court of Karnataka rendered in the case of CIT & Another Vs. TATA Elxsi Ltd., reported in 349 ITR 98, the components of the Export Turnover in the numerator and the Total Turnover in the denominator cannot be Page 5 of different. Since the assessing officer did not consider the telecommunication expenses to an extent of Rs.1,89,364/- and a sum of Rs.3,58,590/- pertaining to expenditure in foreign currency for the purposes of Export Turnover, the assessing officer shall not consider the aforesaid said telecommunication expenses and the expenditure in foreign currency for the purposes of Total Turnover also. As this measure would render the arguments made on behalf of the appellant on merits for considering the said telecommunication expenses and the expenditure in foreign currency as part of the export profits academic, those arguments are not separately adjudicated.
7. The seventh Ground relates to interest under section 234A & C of the Act, on the facts of the case. As the remaining grounds have been allowed in appeal, the Assessing Officer is directed to first rectify the order of assessment and accordingly, re-compute the applicable amount of interest chargeable under section 234A & C of the Act.” Aggrieved by the order of Ld. CIT(A), assessee is in appeal before the Tribunal.
5. At the outset, it is submitted by the Ld.AR that there is delay of 1178 days in filing the present appeal before this Tribunal. The Ld.AR has filed the application seeking condonation of delay and submitted as under: “4. However, during the intermittent period the concerned advocate who prepared the appeal was no longer associated with the appellant’s tax counsel and the fact that the appeal is yet to be filed was neither communicated to the appellant nor to other advocates in the tax counsel’s office.
5. It is further submitted that the appellant was under a bonafide belief that the appeal has been filed before this Hon’ble Tribunal and the delay in filing the appeal due to miscommunication was inadvertent and not deliberate, rather the appellant was prevented by reasonable cause in filing the appeal on time.”
Page 6 of It is submitted that the non filing of the appeal within the period of limitation was an inadvertent mistake and prayed for the condonation of delay. The Ld.DR opposed to the application of condonation of delay. We have perused the submissions advanced by the both sides in light of records placed before us.
6. The Hon’ble Supreme Court and High courts are of the view that the law of limitation is founded on public policy. The thought process of laying down such principle is to consider application of condonation of delay having regard to the law of limitation, but, not to destroy the rights of the parties and to ensure that they do not resort to dilatory tactics and seek remedy without delay. It has always been enunciated by the Hon’ble Courts that the objective of the law of limitation is to keep alive the legal remedy within a prescribed limited time but does not restrict courts to condone the delay in the interest of Justice.
On reading the decision of Hon’ble Supreme Court in case of Collector, Land Acquisition vs. MST Katiji & Ors., reported in 167 ITR 471, it becomes clear that, in the case of condonation of delay where the appeal was filed beyond the limitation of period, the courts are empowered to condone the delay, provided that the Appellant can prove his claim of inability to file appeal within the prescribed period. Litigant must be able to demonstrate that there was “sufficient cause” which obstructed his action to file Appeal beyond the prescribed time limit. Courts have also held that the expression “Sufficient Cause” shall receive liberal consideration for the sake of Justice. Thus, the condonation of delay is not automatic but is based upon on the facts of the case.
Page 7 of Courts while condoning delays in filing appeals have power to examine each case separately and after ascertaining the facts if delay was due to “sufficient cause” may Condon the delay.
In the present facts of the case, the assessee approached its authorized representative against the order dated 30/03/2016 within the period of limitation and was under the bonafide belief that necessary steps have been taken in respect of filing of appeal. However due to the disassociation of person who was handling assessee’s appeal, the non filing of the same was not communicated, causing such delay. In our opinion there is sufficient cause and it was not deliberate act on behalf of assessee that caused such huge delay. In the interest of justice, we condone the delay in filing the present appeal before this Tribunal. Application of condonation of delay accordingly stand allowed.
The only issue on merits that arises in the present appeal computation of deduction under section 10A of the Act, after setting off brought forward losses against the profits of eligible unit.
The Ld.AR relied on the decision of Hon’ble Karnataka High Court in case of CIT vs. Yokogawa India Ltd., reported in 341 ITR 385. Whereas The Ld.DR relied on the decision of Hon’ble Karnataka High Court in case of Himatasingike Seide Ltd. reported in 286 ITR 255.
Similar circumstances arose before the Coordinate bench of this Tribunal in case of ITO vs. Clear Water Technology Pvt.Ltd., in Page 8 of for assessment year 2010-11 by order dated 12/09/2014, wherein this Tribunal following the view taken by Hon’ble Karnataka High Court n case of CIT vs. Yokogawa India Ltd.(supra) and decision of Coordinate bench of this Tribunal in case of DCIT vs. Biocon in ITA no. 248, 238, 369, 370, 371 and 1206/B/2010 by order dated 30/04/2014, observed and held as under: “5. On appeal by the assessee, the CIT(Appeals), following the decision of the Hon'ble High Court of Karnataka in the case of Yokogawa India Ltd., 341 ITR 385 (Karn.), as also the decision of the ITAT in assessee's own case for the A.Y. 2008-09 in ITA No. 1297/Bang/2007 dated 28.9.2012, held that the deduction u/s. 10B was an exemption provision and therefore deduction has to be allowed before set off of brought forward business losses of the assessee for the A.Ys. 2003-04 & 2004-05. Aggrieved by the order of the CIT(A), the revenue has preferred ground Nos.2 & 3 before the Tribunal.
At the time of hearing of the appeal, the learned DR placed reliance on the decision of the Hon'ble Karnataka High Court decision in the case of CIT Vs. Himatasingike Seide Ltd 286 ITR 255 wherein it was held that deduction u/s.10A of the Act has to be allowed only after set off of carried forward of business loss. He pointed out that the said decision has since been approved by the Hon'ble Supreme Court. The learned counsel for the assessee firstly brought to our notice that Sec.10A(4) of the Act, which is the basis for computation of deduction u/s.10A of the Act, reads as follows : "10A(4) For the purposes of sub-section (1) and (1A), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking." He submitted before us that the deduction u/s.10A(4) is computed on the basis of a formula and there is no scope for setting off of brought forward losses. Secondly, it was submitted by him that the provisions of Sec.10A of the Act have been held to be exemption provision by the Hon'ble Karnataka High Court in the case of Yokogawa India Ltd., (341 ITR 385).
Page 9 of Thirdly, it was brought to our notice that recently the Bangalore Bench of the Tribunal in the case of DCIT v. Biocon in ITA.248, 368 to 371 & 1206/Bang/2010, order dt 30.04.2014 had an occasion to consider the set off of earlier year's business loss while allowing deduction u/s.10A of the Act in the light of the circular issued by the CBDT, namely Circular No.7, dt 16.07.2013, as well as the decision of the Hon'ble Karnataka High Court in the case of Himatasingike Seide Ltd (286 ITR 255), which was later confirmed by the Hon'ble Supreme Court. It was pointed out by him that the Tribunal in the aforesaid decision finally came to the conclusion that the provisions of Sec.10A of the Act, are exemption provisions and therefore the income of 10A unit has to be excluded at the source. Therefore the question of set off of the current year and brought forward business loss and unabsorbed depreciation against Sec.10A profits does not arise.
7. We have given a careful consideration to the rival submissions. A similar issue and similar arguments on that issue had been considered by this Tribunal in the case of DCIT Vs. Biocon (supra). This Tribunal on an identical issue held as follows: "23. We have given a very careful consideration to the rival submissions. The issue raised by the assessee in ground no.21 is identical to the ground raised by the assessee in Biocon (supra). The facts of the case before the Tribunal in the case of Biocon (supra) were that the assessee during the previous year had four units which were entitled to claim deduction u/s. 10B of the Act viz., CMZ Unit, SAP Unit, RHI Unit and IFP Unit. The assessee had claimed deduction u/s. 10B of the Act in respect of the aforesaid units totaling Rs.157,22,33,066 which is the sum total of deduction u/s. 10B for the four units as follows:- (1) CMZ Unit : 6,87,70,229 (2) SAP Unit : 76,60,29,880 (3) RHI Unit : 52,42,56,278 (4) IFP Unit : 21,31,76,679 Total 157,22,33,066 The assessee had non-10B units as well. In those non-10B units, there was a loss of Rs.105,92,19,172. In the return of income filed by the assessee, the assessee sought to carry forward the loss of non-10B units for set off against the profits of non-10B units in the subsequent assessment years. The AO firstly noticed that there was income from other sources to the extent of Rs.4,71,15,896 and such had to be set off against the loss of the non-10B units. Accordingly, the AO held that the loss of the non- Page 10 of 10B units that had to be considered for carry forward would be Rs.101,21,03,280. Thereafter, the AO was of the view that income of the 10B units had to be set off against the loss of the non-10B units and if it is so set off, there will be no loss that needs to be carried forward. In coming to the aforesaid conclusion, the AO expressed the opinion that provisions of section 10B are deduction provisions and therefore effect will have to be given to the provisions of section 72 of the Act, even in respect of profits of the 10B unit. Accordingly, the claim of the assessee for carry forward of loss of non-10B unit was not allowed by the AO. On appeal by the assessee, it was contended that the provisions of section 10A and section 10B are exemption provisions and therefore the profit of 10A and 10B units will not enter the computation of total income at all and therefore the profits of these units need not be set off against the loss of non- 10B unit by invoking the provisions of section 72 of the Act. The CIT(Appeals) did not agree with the contention of the assessee and in doing so, he placed reliance on the decision of the Hon'ble Karnataka High Court in the case of CIT v. Himatsingike Seide Ltd., 286 ITR 255 (Kar). In the aforesaid decision, the Hon'ble High Court has taken the view that deduction u/s. 10B has to be allowed after set off of unabsorbed depreciation and unabsorbed investment allowance. The Hon'ble Court took the view that the aforesaid provision was only an exemption provision. The CIT(Appeals) noticed that the aforesaid decision was followed by the ITAT Bangalore Bench in the case of Intelnet Technologies India Pvt. Ltd. v. ITO, dated 12.3.2010. Similar view expressed by the Delhi Bench of the Tribunal in the case of Global Vantage Pvt. Ltd. v. DCIT, 2010 TIOL 24 ITAT (DEL) was also referred to by the CIT(A). A contrary view was expressed by the Bangalore Bench of the Tribunal in the case of KPIT Cummins Info Systems (Bangalore) Pvt. Ltd. v. ACIT, 120 TTJ 956. The CIT(A) found that in the case of Global Vantage Pvt. Ltd. (supra) decided by the Delhi Tribunal this decision has been held to be not in tune with the decision of the Hon'ble High Court of Karnataka in the case of Himatsingike Seide Ltd. (supra). The CIT(A) also referred to the decision of the Chennai Bench of the Tribunal in the case of Sword Global India Pvt. Ltd. v. ITO, 306 ITR 286 (AT), wherein the provisions of section 10A and 10B have been held to be deduction provisions and not exemption provisions. For all the above reasons, the CIT(Appeals) confirmed the order of the Assessing Officer. Against the order of the CIT(A), the Assessee was in appeal before the Tribunal.
This Tribunal dealt with the issue in the following words : 63. We have given a careful consideration to the rival submissions. The issue as to whether the provisions of Sec.10B of the Act are deduction provisions or exemption provisions will assume great importance. The reason is that if the provisions are considered as exemption provisions then they will not enter the computation of total income and therefore the loss of the eligible unit cannot be set off against the profits of the non- eligible unit. This issue has already been settled by the Hon'ble Karnataka High Court in the case of Yokogawa India Ltd. (supra). The Hon'ble Karnataka High Court in the case of Yokogawa (supra) had to deal with two substantial question of law. The first substantial question of law was on the right of set off of loss of non-eligible unit against the profit of the eligible unit on which deduction u/s.10B was to be allowed. The Hon'ble Court in para 10 to 20 of its judgment dealt with the issue. The Hon'ble Court noticed that Sec.10- A(1) of the Act (which is in pari materia with Sec.10-B of the Act) read as follows: "10B. Special provisions in respect of newly established undertaking in free trade zone etc.,-(1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the Previous- year in which the under-taking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee :" (emphasis supplied) 64. The expression "Deduction" and "shall be allowed from the total income of the Assessee" used in the aforesaid provisions was considered by the Hon'ble High Court and it held in para 13 to 15 of its judgment that the expression " shall be allowed from the total income of the Assessee" does not mean total income as defined u/s.2(45) of the Act but that expression means "profits and gains of the STP undertaking as understood in its commercial sense or the total income of the STP unit. Thus the view expressed is that income of the STP undertaking gets quarantined and will not be allowed to be set off against loss of either another STP undertaking or a non STP undertaking. The Hon'ble Court thereafter held that though the expression used in Sec.10A was "Deduction" but in effect it was only an exemption section. These conclusions clearly emanate from para 17 of the Hon'ble Court's judgment.
The situation with which we are concerned in the present case is a situation where there is positive income of the eligible unit then the same should be allowed deduction u/s.10B of the Act without setting of the loss of non-eligible unit. The Hon'ble Karnataka High Court in the case of Yokogawa (supra) was concerned with similar situation as set out above. In view of the aforesaid decision of the Hon'ble Karnataka High Court, we are of the view that the claim as made by the Assessee for carry forward of loss of the non-eligible unit had to be allowed without set off of profits of the 10A/10B unit. We hold accordingly and allow the relevant grounds of appeal
of the Assessee.
66. We may also observe that the Hon'ble Karnataka High Court's decision in the case of Himatasingike Seide (supra) has held that unabsorbed depreciation (and business loss) of same (s. 10A/10B) unit brought forward from earlier years have to be set off against the profits before computing exempt profits. The assessee in that case set up a 100% EOU in AY 1988-89. For want of profits it did not claim benefits u/s 10B in AYs 1988- 89 to 1990-91. From AY 1992-93 it claimed the said benefits for a connective period of 5 years. In AY 1994- 95, the assessee computed the profits of the EOU without adjusting the brought forward unabsorbed depreciation of AY 1988-89. It claimed that as s. 10B conferred "exemption" for the profits of the EOU, the said brought forward depreciation could not be set-off from the profits of the EOU but was available to be set- off against income from other sources. It was also claimed that the profits had to be computed on a "commercial" basis. The AO accepted the claim though the CIT revised his order u/s 263 and directed that the exemption be computed after set-off. On appeal by the assessee, the Tribunal reversed the order of the CIT. On appeal by the department, the High Court in CIT Vs. Himatasingike Seide Ltd. 286 ITR 255 (Kar) reversed the order of the Tribunal and held that the brought forward depreciation had to be adjusted against the profits of the EOU before computing the exemption allowable u/s 10B. In Civil Appeal No.1501 of 2008 dated 19.9.2013 against the aforesaid decision of the Hon'ble Karnataka High Court, the Hon'ble Supreme Court observed as follows while dismissing the appeal:- "Having perused the records and in view of the facts and circumstances of the case, we are of opinion that the civil appeal being devoid of any merit deserves to be dismissed and is dismissed accordingly."
67. Thus the ratio has to be confined to the facts and circumstances of the case. The aforesaid observations have to be confined to the facts of that case and as applicable to a case where brought forward losses and depreciation of the very same STP undertaking are not adjusted while arriving at the profits of the 10B unit for allowing deduction u/s.10A/10B of the Act and not in respect of brought forward losses and depreciation of other undertakings/non-10A/10B units. S. 10A/10B(6) as amended by the FA 2003 w.r.e.f. 1.4.2001 provides that depreciation and business loss of the eligible unit relating to the AY 2001-02 & onwards is eligible for set- off & carry forward for set-off against income post tax holiday which means that they need not be so set off as mandated in the decision of the Hon'ble Karnataka High Court in the case of Himatasingike Seide Ltd. (supra). As we have already seen, in Yokogawa India Ltd. 341 ITR 385 (Kar), it was held that even after s. 10A/10B were converted into a "deduction" provision w.e.f 1.4.2001, the benefit of relief u/s 10A/10B is in the nature of "exemption" with reference to "commercial profits" and that as the income of the s. 10A unit has to be excluded at source itself before arriving at the gross total income, the question of setting off the loss of the current year's or the brought forward business loss (and unabsorbed depreciation) against the s. 10A profits does not arise. Therefore the decision of the Hon'ble Karnataka High Court in the case of Himatasingike Seide (supra) will not apply to the facts of the present case." 26. In view of the aforesaid decision, we are of the view that the claim made by the assessee deserves to be accepted. We may also observe that CBDT circular No.7 dated 16.07.2013, on the facts and circumstances of the present case is not a benevolent circular vis-à-vis, the assessee, and therefore the decision to the contrary of the Hon'ble Karnataka High Court in the case of Yokogawa India (supra) will continue to apply. For the reasons given above, we direct the Assessing Officer to accept the claim of the assessee, as raised in ground no.21." 8. The reasoning given by the Tribunal for allowing the claim of the Assessee as set out above will equally apply to the facts and circumstances of the present case. We therefore following the aforesaid decision, find no grounds to interfere with the order of the CIT(A). Grounds No.2 & 3 raised by the Revenue are accordingly dismissed.” 12. Respectfully following the above view, we direct the Ld.AO to compute the deduction under 10A in accordance with the Page 14 of Hon’ble Karnataka High Court in case of CIT vs. Yokogawa India Ltd.(supra). In the result, the appeal filed by assessee stands allowed for statistical purposes. Order pronounced in the open court on 07th March, 2022.